Gold Price Forecast: Vulnerable To A Pullback As Yield Resurges. US Inflation Data In Focus

Gold vs. DXY US Dollar Index – 12 Months

Gold Price Forecast: Vulnerable to a Pullback as Yield Resurges. US Inflation Data in Focus

Source: Bloomberg, DailyFX

The world’s largest gold ETF - SPDR Gold Trust (GLD) – saw continuous net capital outflows over the past few weeks. The number of GLD shares outstanding fell to 364.3 million on March 9th from a recent high of 407.1 million observed on January 4th, marking a 42.8 million decline over two months. Gold prices have fallen by 11.6% during the same period, suggesting that capital was fleeing from the yellow metal into riskier assets looking for yield and growth. Gold prices and the number of outstanding GLD shares have exhibited a strong positive correlation of 0.92 over the past 12 months (chart below).

Gold Price vs. GLD ETF Shares Outstanding – 12 Months

Gold Price Forecast: Vulnerable to a Pullback as Yield Resurges. US Inflation Data in Focus

Source: Bloomberg, DailyFX

Technically, gold prices broke below the “Descending Channel” with strong downward momentum, with the floor of the “Descending Channel” becoming an immediate resistance level. The overall trend remains bearish-biased as suggested by downward-sloped moving averages. The MACD indicator is about to form a bullish crossover, suggesting that a near-term rebound is possible. A daily close above the floor of the “Descending Channel” may intensify near-term buying pressure and bring the 127.2% Fibonacci extension level (1,734) into the crosshairs.

Gold Price – Daily Chart

(Click on image to enlarge)

IG Client Sentiment indicates that 84% of retail traders are net-long with the ratio of traders long to short at 5.25. The number of traders net-long is 4% lower than yesterday and 5% higher from last week, while the number of traders net-short is 38% higher than yesterday and 6% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are heavily leaning to the long side suggests that gold prices may continue to fall.

However, traders are more net-short than yesterday and last week. Recent changes in sentiment warn that the price trend may soon reverse higher despite the fact traders remain net-long.

1 2
View single page >> |

Disclosure: See the full disclosure for DailyFX here.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.